Market Commentary 15th July 2025 – from Naigil Johnson

The UK economy unexpectedly contracted by 0.1% in May, according to The Office for National Statistics (ONS), defying forecasts of a modest 0.1% growth. Chancellor Rachel Reeves called the figures ‘disappointing’ and said she was ‘determined to kickstart economic growth’. The consecutive declines have raised the risk that data for the second quarter as a whole will show the economy shrank.

UK manufacturing output fell by 1% in May 2025, missing expectations of a 0.1% drop and following a revised 0.7% decline in April. This was the third straight month of contraction and the sharpest since July last year.

A European Central Bank (ECB) board member, Isabel Schnabel, said another rate cut is unlikely as the eurozone economy is holding up better than expected despite global trade uncertainty. The ECB signalled that it would keep rates steady for now and watch how conditions evolve, particularly amid tensions driven by US President Donald Trump.

Germany’s trade surplus grew to €18.4 billion in May 2025, up from a revised €15.7 billion in April and surpassing market expectations of €15.5 billion. The increase came as exports declined compared to imports, mainly due to reduced sales to major trading partners in the US and China. France’s trade deficit edged slightly higher to €7.8 billion in May 2025, which was higher than market expectations and up from a downwardly revised €7.7 billion in April.

The US government reported a $27 billion budget surplus in June, as a result of a record $27.2 billion in customs duties, largely from tariffs set by President Donald Trump. Revenue rose 13% to $526 billion, while spending fell 7% to $499 billion.

US initial jobless claims fell by 5,000 to 227,000 in early July, defying expectations of a 2,000 rise to 235,000. This marked the fourth consecutive weekly decline and the lowest level in seven weeks, reinforcing signs that the labour market remains resilient despite high interest rates and economic uncertainty.

Japan was unable to secure a trade agreement with the United States before the temporary pause on reciprocal tariffs expired on the 9^th of July. Prime Minister Shigeru Ishiba stated that he remains committed to pursuing further talks with Washington in hopes of reaching a deal that benefits both nations. This comes after US President Donald Trump announced that a 25% tariff on Japanese imports will take effect from the 1^st of August.

China’s consumer prices edged up by 0.1% year on year, ending a three-month streak of slight declines. This modest rise was slightly higher than expected, as analysts had predicted prices would remain flat. This marked the first time since January that annual inflation showed any increase and the uptick was largely fueled by major online shopping events, government subsidies aimed at boosting consumer spending and a reduction in trade tensions with the US

The growing political and fiscal uncertainty in the UK seemed to contribute to gilt yields increasing across the weak.

President Trump’s threats of a 30% tariff on EU imports starting August 1 appeared to contribute to the increase in yields.

The rise in US bond yields seemed to be following the new tax bill that President Donald Trump signed into law, adding an estimated $3.4 trillion to deficits over the next decade.

GBP / EUR – Current 1.1542 Previous 1.1588

The Pound declined both against the Dollar (-1.15%) and the Euro (-0.40%) last week. The news regarding UK Gross Domestic Product (GDP) contracting by 0.1% in May, alongside the growing political and fiscal uncertainty in the UK appeared to contribute to the continued decline of the pound.